Edison Seeks State Approval to Plug Into Phone Market

Telecommunications: The power utility would sell service and network capacity to carriers, but would not have residential or business customers.

Staking a claim to part of the state's phone business, Southern California Edison Co. this week became the first major energy company in California to seek approval to become a wholesale phone service provider.

The Rosemead-based power utility said Friday that it would not sell phone service under its name--either to business or residential customers--but would instead sell network capacity to other phone competitors, including local and long-distance companies, Internet service providers, and cable and wireless companies.

"Our plans are not to provide dial tone to the residential market," said Mahvash Yazdi, vice president and chief information officer at SCE. "But this will benefit our consumers by benefiting carriers who don't have access to the local market today."

As the nation's second-largest investor-owned electric utility with 12 million Southern California customers, SCE already licenses or leases about 45% of its excess fiber optic capacity to nine local phone competitors--most of which offer service to business customers.

Under the expanded plan, SCE would go one step further and add some of the services that go with the lines. The company estimated that another 19% of its network would be used for new carrier customers, while the remaining 36% would continue to be used for its energy operations. It would also pursue carrier partnerships.

SCE hopes to begin selling service to carriers by the third quarter of 1999. But first the company must gain interconnection agreements with incumbents Pacific Bell and GTE Corp. and win approvals from the California Public Utilities Commission and the Federal Communications Commission.

"We've opened the market, and we're willing to work with anyone who wants to compete," PacBell spokesman John Britton said.

The energy company also would have to satisfy power PUC regulators that the diversification would not have a detrimental impact on energy customers.

SCE said it would split revenue from the new phone venture with energy ratepayers and company shareholders. Details of that split were not available Friday. Shareholders would pay for the installation of additional fiber, which would be added as needed by customers, the company said.

"It's the first company to seek telecommunications authority by one of California's investor-owned energy utilities," said Jack Leutza, director of the PUC's telecommunications division.

"Even though Edison isn't going to offer residential dial tone, the fact that they are out there in the marketplace will eventually benefit end users," Leutza said.

SCE's plan, outlined in documents filed Wednesday with the PUC, follows a trend among energy companies of tiptoeing into telephony as a way to use excess capacity in their extensive in-house telecommunications networks.

Those networks, including SCE's 3,500 miles of fiber and copper lines, were installed to help the companies monitor and maintain their vast energy grids. As such, the state-of-the-art networks often extend into the far reaches of the company's territory, including into residential neighborhoods.

But while the networks seemed nearly ideal to double as phone service networks, energy companies were prohibited from joining the phone business until passage of the 1996 Telecommunications Act, which struck down that barrier.

While energy companies did not immediately take advantage of the change, a growing number of energy companies--and city-owned utilities--have begun expanding into telephony.

Industry observers attribute the faster pace to the move toward energy deregulation, which has put pressure on the utilities to diversify to offset their lost monopoly.

"The feeling is that this is functionally similar to what they already do--it's managing networks, it's customer billing and it's a customer service business," said Sean Stokes, associate general counsel for the Utilities Telecommunications Council, a Washington-based trade group that represents the internal communications needs of energy companies and cooperatives.

Some energy companies have gone all the way to residential customers, adding coaxial cable to carry the phone signals to their fiber hubs. Other energy firms have partnered with other companies, such as RCN Corp., that specialize in the phone business, thus removing some of the risk.

So far, though, analysts are undecided if the extra investment has been worth it.

"It's somewhat easier for an energy utility to become a [competitive carrier] than another start-up," said Brian Ledingham, a vice president at BCI Inc., a Chantilly, Va.-based consulting firm that advises new phone competitors. "But there's a big difference between delivering dial tone and delivering 220 volts to your home."